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The Impact of Agricultural Subsidies on the Corn Market with Farm Heterogeneity and Endogenous Entry and Exit

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  • Devadoss, Stephen
  • Gibson, Mark J.
  • Luckstead, Jeff

Abstract

We develop a model with farm-level heterogeneity in productivity and endogenous entry and exit decisions to analyze the effect of price supports and direct payments on the U.S. corn market. The analytical results show that, contrary to the existing literature, removal of direct payments augments productivity while removal of price supports does not impact productivity, and direct payments can lead to larger production distortions than price supports under certain conditions. The simulation results corroborate the theoretical findings in that if both policies are equal in magnitude, then direct payments result in larger price, output, and welfare distortions than price supports.
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Suggested Citation

  • Devadoss, Stephen & Gibson, Mark J. & Luckstead, Jeff, 2015. "The Impact of Agricultural Subsidies on the Corn Market with Farm Heterogeneity and Endogenous Entry and Exit," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 205889, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea15:205889
    DOI: 10.22004/ag.econ.205889
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    3. Fertő, Imre & Bojnec, Štefan & Iwasaki, Ichiro & Shida, Yoshisada, 2024. "Why do corporate farms survive in Central and Eastern Europe?," Agricultural Systems, Elsevier, vol. 218(C).
    4. Agnė Žičkienė & Rasa Melnikienė & Mangirdas Morkūnas & Artiom Volkov, 2022. "CAP Direct Payments and Economic Resilience of Agriculture: Impact Assessment," Sustainability, MDPI, vol. 14(17), pages 1-24, August.
    5. Kehinde Oluseyi Olagunju & Myles Patton & Siyi Feng, 2020. "Estimating the Impact of Decoupled Payments on Farm Production in Northern Ireland: An Instrumental Variable Fixed Effect Approach," Sustainability, MDPI, vol. 12(8), pages 1-17, April.
    6. Yinhao Wu & Enru Wang & Changhong Miao, 2019. "Fertilizer Use in China: The Role of Agricultural Support Policies," Sustainability, MDPI, vol. 11(16), pages 1-23, August.

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